Aurinia Pharmaceuticals Inc.

Aurinia Pharmaceuticals Inc. (TSX: AUP) is a biopharmaceutical company, which provides medicine for patients suffering from serious diseases with high unmet medical need.

Key Highlights:

• Positive Guidance: As per the Management Guidance, the company expects the followings in the coming days:

1. The company expects filing of a marketing authorization application (MAA) with the European Medicines Agency (EMA), within the first half of FY21 with partner Otsuka.
2. In the second half of FY21, the group would initiate a study of voclosporin (a drug used for the treatment of lupus nephritis (LN) in adolescent patients.
3. The group expects its income generation from its current AURORA-2 study (a study done to assess the long-term safety and tolerability of drug voclosporin on Renal diseases) in the first quarter of FY22.

• Impressive Results from AURORA study: Recently, the company witnessed encouraging results from its AURORA-2 study, meant for the safety & efficacy of LUPKYNIS (an oral treatment for lupus nephritis for protecting the Kidneys from irreversible damage). In the above study, the group saw an improvement in Proteinuria, with a greater reduction in UPCR (Urine Protein/Creatinine ratio) from its pre-treatment phase. Moreover, the above result did not witness any new adverse events (AEs) of the decreased glomerular filtration rate of Kidneys among patients who continued with the above treatment. Going forward, the company would focus on the commercialization of the above product. Notably, the FDA approved LUPKYNIS in combination with a background immunosuppressive therapy regime to treat adult patients with active Lupus Nephritis (LN).

Q1FY21 Financial Highlights:

• AUP announced its quarterly result, wherein the company posted total revenue of USD 0.914 million, as compared to USD 0.030 million in the previous corresponding period (pcp). The increase in topline was primarily supported by a strong performance from the product revenue segment, supported by commercial sales of LUPKYNIS and drug substance.
• Total cost and operating expenses were recorded at USD 51.457 million, significantly higher than USD 27.090 million in the previous corresponding period (pcp). The increase was driven by higher selling, general and administrative costs (USD 39.282 million v/s USD 11.053 million in pcp), while lower Research and development costs (USD 9.833 million v/s USD 13.835 million in pcp) partially supported the performance.
• The group reported a higher loss from operation at USD 50.543 million, as compared to USD 27.060 million in pcp.
• Net loss widened to USD 50.379 million, from USD 25.932 million in the previous corresponding period. The increase in loss was primarily due to a higher loss from operations coupled with a lower interest income (USD 0.172 million v/s USD 0.890 million in pcp).

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: The product of the company depends on the clinical trials and subsequently to the regulatory approvals. Any delay or suspension of the same would impact the company’s performance and resource.

Stock Recommendation:

The company reported ample liquidity of USD 360.9 million in Q1FY21, which seems to be sufficient to fund commercial activities, including its FDA related costs, manufacturing, and packaging of commercial drug supply etc. Based on technical analysis, the stock has support at CAD 12.8 level. On the valuation front, the stock of AUP is available at an EV to Sales Multiples of 10.97x on an NTM basis, as compared to the industry (Biotechnology & Medical Research) median of 13.8x. Hence, considering the above rationale, we give a ‘Speculative Buy’ rating on the stock of AUP at the last closing price of CAD 15.51 on June 03, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock if the price closes below the support level.

One-Year Technical Price Chart (as on June 03, 2021). Analysis by Kalkine Group

Andlauer Healthcare Group Inc.

Andlauer Healthcare Group Inc. (TSX: AND) is an investment holding company and operates in two segments, namely Specialized Transportation and Healthcare Logistics. The group derives maximum revenue from the Specialized Transportation segment.

Key Highlights:

• Surge in Cash from operations: The group reported a surge in cash from operations at CAD 16.813 million in Q1FY21, significantly higher than CAD 10.106 million in Q1FY20. The growth was supported by higher net income coupled with impressive working capital management.
  

• Positive Macros: Over the years, the Canadian outsourced healthcare logistics and transportation market has delivered consistent growth, supported by higher spending by prime clients from Pharmaceuticals, Medical Devices, Nutraceuticals and Medical Cannabis. The group is witnessing surge in order inflow, as the players are focusing on new business opportunities through expansion. Notably, demand drivers for the growth are the aging population, increase in the life expectancy of common people and growth in the number of healthcare and adjacent products with unique logistics needs due to increasing industry regulation etc. The industry is expected to grow at ~6% CAGR from 2020 to 2024, while we believe AND is highly poised to utilize the upcoming opportunities coming from the industry.
  

• Strategic Expansion plans: The company is focusing on leveraging its existing nationwide network of facilities, which is dedicated to equipment and client relationships. Moreover, the group is also emphasizing on securing organic growth by expanding its regional relationships with existing clients in new geographies and secure new client contracts.
  

Q1FY21 Financial Highlights:

• AND announces its quarterly result, wherein the company posted revenue of CAD 95.766 million, significantly higher than CAD 81.650 million in Q1FY20. The increase was driven by higher income from both the Specialized Transportation segment and Healthcare Logistics segment.
• Operating income was recorded at CAD 16.663 million v/s CAD 12.404 million in the previous corresponding period (pcp). The increase was driven by elevated sales coupled with lower direct expenses, partially offset by an increase in the cost of transportation and services and higher selling, general and administrative expenses.
• Net income and comprehensive income stood at CAD 11.611 million, significantly higher than CAD 8.182 million in pcp. The increase was driven by higher operating income, partially offset by higher interest expense and an increase in income tax expense.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: Due to added restrictions, travel ban, the arrival of a new player within the industry, and change in client’s preferences, there might be a decline in company’s revenue and cash flows, which might result in a fall in the market share.

Valuation Methodology (Illustrative): EV to EBITDA based methodology.

Stock Recommendation:

Apart from the organic growth, the company is also looking for inorganic growth opportunities to secure prospective clients. Moreover, the company added capacity across the Brampton facility in July 2020, which can cater to the added client’s requirements. Meanwhile, in the recent past, the company acquired TDS Logistics Ltd. and McAllister Courier Inc. in October 2020 and Skelton in March 2021, which are expected to improve the company’s business prospects through higher market penetration and better service offerings. Based on technical analysis, the stock has support at CAD 30.5 level. We have valued the stock using the EV to EBITDA-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Medical Facilities Corp, Quipt Home Medical Corp and Universal Health Services Inc etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock of AND at the last closing market price of CAD 36.42 on June 03, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.

One-Year Technical Price Chart (as on June 03, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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